What is the purpose of a bank reconciliation?

The purpose of a bank reconciliation is to compare and reconcile a company's bank account balance with its own records. This is a critical process that helps ensure the accuracy of financial statements and the integrity of the accounting records. By performing a bank reconciliation, a business can identify any discrepancies between its own records and the bank's records, such as outstanding checks, deposits in transit, or bank fees that may not yet be recorded in the company's books.

This alignment is essential because it provides a clearer picture of a company's actual cash position and helps detect errors or potential fraud. Regular bank reconciliations also promote better cash flow management and financial planning, contributing to overall effective financial control within the organization. Thus, understanding the importance of this process is key for anyone involved in accounting or financial management.